Joe Nocera on the Winners of This Year's "Stupidest Economist Alive" Contest--Wallison, Hennessy, Holtz-Eakin, and Thomas
Nocera:
Republican Financial Crisis Report Repeats Party Dogma - NYTimes.com: [T]he commission’s Republican members having now issued this public, partisan smoke signal, the final product, no matter how rigorous, will be inevitably dismissed as a Democratic document.... To fix a problem, though, it helps to know what the problem is. The F.C.I.C., with all those witnesses and documents, could have really helped here. But the paper released by the commission’s Republicans this week reads as if they couldn’t be bothered. It simply reiterates longstanding Republican dogma that could have been written without a $6 million investigation....
The problem the Republicans want to fix is the two government-sponsored entities, Fannie Mae and Freddie Mac. Without question, Fannie and Freddie need fixing.... [Wallison's] precrisis prognosis of Fannie and Freddie’s ills was wrong in a number of key ways. Like most Fannie and Freddie critics at the time, he believed the risk they posed was interest-rate risk, rather than credit risk.... He also argued that Fannie and Freddie were consistently ignoring their mission to help make affordable housing available to Americans. As he wrote in 2004, “Study after study have shown that Fannie Mae and Freddie Mac, despite full-throated claims about trillion-dollar commitments and the like, have failed to lead the private market in assisting the development and financing of affordable housing.” After the crisis, his tune changed considerably — as did that of many other Republicans, who tended to follow his intellectual lead on this issue. Now, he said, it was government policy aimed at increasing homeown....
The Republican document issued earlier this week did little more than regurgitate this theory of the case. “Subsidizing mortgages through the G.S.E.’s was a particularly expedient way to increase the homeownership rate,” they write at one point. At the same time, they tread lightly over the culpability of other nongovernmental culprits.... The only problem with Mr. Wallison’s theory is that it’s not, as they say, reality-based. Anyone who has looked at the role of Fannie and Freddie will discover they spent most of the housing bubble avoiding subprime loans, because those loans didn’t meet their underwriting standards.... When Fannie and Freddie finally did get into the business, it was very late in the game. But the motivation wasn’t pressure from the government; it was pressure from the marketplace....
What is most troubling is that the Republicans are going to try to create new policy based on Mr. Wallison’s analysis....
I’m all for reforming Fannie and Freddie. Who isn’t? But at this stage of the game, you can’t reform the G.S.E.’s without reforming the private market too. That may not be where the Republicans’ theory of the case takes them. But it happens to be true.
